About borrowing and credit

Taking out a loan online is becoming increasingly common. And a credit agreement can be signed quickly. Paying them off takes a lot longer and can get damn expensive. What does it mean to take out a loan in 2010?

Check creditworthiness

Many young people in particular think that a loan is the easiest way to finance a car, a flat screen TV or your own home. But appearances are deceiving! To take out a loan, regardless of whether it is with a bank, a car dealer or a mail order company, you must generally be of age. But then you are also absolutely legally competent with all obligations and risks. Serious banks will first check your creditworthiness , which means that they require collateral and make an inquiry at the Credit Registration Office (BKR) . If all signals are “green”, they grant such credit that they can assume that the lent money will also be returned. An exception is student credit because there is no BKR registration and repayment is not always possible.

Lending is not charity

Do not trust credit intermediaries who lend money without proper checks in advance! As a rule, they are not bona fide and charge excessively high interest rates and treatment costs. But banks and other credit institutions also do not, of course, practice lending out of charity. In compensation, an interest rate is agreed that depends, among other things, on the term of the loan and the repayment terms. Sometimes the interest rate can be fixed , but often it is variable . This means that it can change at any time. The credit may then turn out to be more expensive than originally assumed. See also: Which loan is best for me?

Nominal and effective interest rate

When it comes to interest, one can distinguish between nominal interest and effective interest. The nominal interest rate is lower and does not include fees and the like. The effective interest rate is therefore of more significance . For example, if it is 7.3 percent, then you have to cough up 73 euros annually for a loan of 1,000 euros. And on top of that there is the 1000 euros that have to be repaid. Seen over a few years, that is quite a nice sum of money. Over a term of five years, that is already more than 350 euros! So those 1000 euros just become 1350 euros…

Hire purchase

The picture does not look much different for installment purchases. More and more companies – car dealers, shipping companies or electrical chains – advertise with ” buy now, pay later “. There are two pitfalls: not only is interest charged, but you can no longer negotiate the price. So you pay twice the price!

Standing in the red

An overdraft , overdrawn current account, can be a good alternative in some situations. Such a debit balance is usually granted when salary regularly arrives in your account. As a rule, the permitted limit is two to three months’ net salary. But keep in mind that the debit interest owed is usually close to 15 percent!

Take out a loan online: banks will face competition

Nowadays, consumers can also borrow from private individuals. They simply make an online request on the web, stating how much interest they want to pay and what term they prefer. The only thing left to do is wait for the investor who wants to finance their loan. Credit on the internet is therefore on the rise and everyone can play bank and lend money to private individuals via internet credit exchanges. But private lenders must remember that they face credit risks just like regular banks. Not every internet platform for loans is reliable.

Save first, then buy

But remember, any credit can be a first step into the debt trap. It is therefore better to save first and then buy, even if that takes a little longer. But what about anticipation?